int 1 unit 6

A company has the following items at year-end: ●cash in bank: $30,000●petty cash: $500●short-term paper with maturity of two months: $7,000●postdated checks: $2,000 Which amount should be reported as cash and cash equivalents in the balance sheet? $30,000 $30,500 $39,500 $37,500

$37,500 = $30,000 + $500 + $7,000. Cash and cash equivalents reported on the balance sheet include cash in the bank, cash on hand, and investments with original maturities of 90 days or less.

The required balance in Wheeler's Allowance for Doubtful Accounts is $36,750, based on an aging of its accounts receivable. The Allowance for Doubtful Accounts currently has a debit balance of $4,200 from earlier in the year. What will Wheeler show as bad debt expense for the year? $40,950 $32,550 $36,750 $4,200

$40,950 Wheeler must make an adjustment in the allowance for doubtful accounts to reach the required balance of $36,750. The allowance for doubtful accounts should be presented as a credit balance. Since the current balance is a debit balance of $4,200, the adjustment must add the current balance to the desired amount. $36,750 + $4,200 = $40,950

The face value of a two-year note is $5,000. Both the market and stated interest rates are 5%.What is the present value of this note? $500 $5,250 $4,750 $5,000

$5,000 The face value and present value of the note are the same when the market and stated interest rate are the same.

On December 31, 2019, Green Company finished consulting services and accepted in exchange a promissory note with a face value of $800,000, a due date of December 31, 2022, and a stated rate of 5%, with interest receivable at the end of each year. The fair value of the services is not readily determinable and the note is not readily marketable. Under the circumstances, the note is considered to have an appropriate imputed rate of interest of 10%. The present value of the interest is $99,474 and the present value of the maturity value of the note is $700,530.Using the effective interest method, what is the balance of the note on the balance sheet at December 31, 2020? $69,417 $730,583 $99,470 $700,530

$730,583

What is the preferable presentation of accounts receivable from officers, employees, or affiliated companies on a balance sheet? As assets but separately from other receivables By means of footnotes only As trade notes and accounts receivable if they otherwise qualify as current assets As offsets to capital

As assets but separately from other receivables Receivables from officers, employees, and affiliated companies are classified as non-trade receivables stated separately from other receivables.

A company has the following information for the period just completed: ●gross sales: $200,000 ●beginning accounts receivable: $11,000 ●long-term notes receivables: $102,000 ●ending accounts receivable: $15,000 ●net sales: $180,000 What is this company's accounts receivable turnover? 15.38 times 12.00 times 18.18 times 13.84 times

13.84 times ( ($180,000 / ($11,000 + $15,000) ) / 2) = 13.84 times. The accounts receivable turnover is calculated by taking net sales and dividing it by the average net accounts receivable.

A company has the following financial information: Year 1 Year 2 Gross sales $55,000 $110,000 Sales return and allowances $5,000 $9,000 Accounts receivable $4,000 $7,500 What is the accounts receivable turnover for Year 2, rounded to the nearest one decimal place? 19.1 14.7 17.6 13.5

17.6 17.6 = ( ( ($110,000 - $9,000) / ($4,000 + $7,500) ) / 2). The accounts receivable turnover is calculated by taking net sales and dividing it by the average net accounts receivable.

A company has current year sales of $500,000, net accounts receivable of $35,000, and prior year net accounts receivable of $43,000.What is the average number of days to collect receivables, rounded to the nearest one decimal place? 31.4 25.6 56.9 28.5

28.5 = 365 / ( ($500,000 / ($35,000 + $43,000) ) / 2). The average number of days to collect receivables is calculated by taking 365 and dividing it by the accounts receivable turnover.

How is days to collect accounts receivable determined? 365 days divided by accounts receivable turnover Accounts receivable turnover divided by 365 days 365 days divided by net sales Net sales divided by 365 days

365 days divided by accounts receivable turnover The days to collect account receivable ratio, an alternative to the accounts receivable turnover ratio, is calculated as Days of the Year divided by Accounts Receivable Turnover Rate.

What is the minimum cash amount that banks often require customers to maintain in their checking accounts called? Money market funds Compensating balances Cash equivalents Bank overdrafts

Compensating balances Compensating balances is the amount that banks and other lending institutions require customers to maintain in their checking and savings accounts.

A company receives a three-year, $20,000 zero-interest-bearing note that has a present value of $16,500.Which entry will this company record to account for the $3,500 difference? Credit premium on notes receivable Debit discount on notes receivable Debit premium on notes receivable Credit discount on notes receivable

Credit discount on notes receivable Journal entry will include a debit to notes receivable for $20,000; a credit to discount for $3,500; and a credit to cash for $16,500.

A company uses days outstanding to evaluate its receivable.Which number does this ratio represent? Times that a company collects average sales Times that a company collects amounts due from customers Days that a company takes to collect amounts due from customers Days that a company collects average sales

Days that a company takes to collect amounts due from customers

A company wants to assess the effectiveness of a company's credit and collection policies.Which ratio should it use? Accounts receivable to sales Quick Current Days to collect accounts receivable

Days to collect accounts receivable Companies often use the days to collect accounts receivable to assess the effectiveness of a company's credit and collection policies.

What is the normal journal entry for recording bad debt expense under the allowance method? Debit Accounts Receivable, credit Allowance for Doubtful Accounts Debit Allowance for Doubtful Accounts, credit Bad Debt Expense Debit Allowance for Doubtful Accounts, credit Accounts Receivable Debit Bad Debt Expense, credit Allowance for Doubtful Accounts

Debit Bad Debt Expense, credit Allowance for Doubtful Accounts The correct entry is to Debit Bad Debt Expense, credit Allowance for Doubtful Accounts.

Equestrain Roads sold $120,000 of goods and accepted the customer's $120,000 10%, 1-year note receivable in exchange. Assuming 10% approximates the market rate of return, what would be the debit in this journal entry to record the sale? Credit Accounts Receivable for $120,000 Debit Accounts Receivable for $120,000 Debit Notes Receivable for $120,000 Credit Notes Receivable for $108,000

Debit Notes Receivable for $120,000 The correct entry is to debit Current Notes Receivable $120,000, credit Sales Revenue $120,000.

During the year Tulip reported net sales of $960,000. The company had accounts receivable of $75,000 at the beginning of the year and $120,000 at the end of the year.What is Tulip's average collection period (assume 365 days a year)? 74.2 days 37.2 days 28.5 days 45.7 days

37.2 days he average collection period, or days to collect accounts receivable, is calculated as Number of Days per Year divided by the Accounts Receivable Turnover Ratio. The Accounts Receivable Turnover is calculated as Net Sales divided by Average Net Accounts Receivable. $960,000 ÷ [($75,000 + $120,000) ÷ 2] = 9.8; 365 ÷ 9.8 = 37.2 days.

Company A sells goods for $5,000 to Company B with terms 1/10, net 45, and Company A expects that the discount will be taken. Company A uses the net method of accounting.Which amount should Company A record for accounts receivable? $5,050 $4,950 $5,500 $5,000

4,950 $4,950 = $5,000 - ($5,000 x .01). Accounts receivable is recorded at the sales amount less the discount at the time of the sale when using the net method of accounting for sales.

Remington Corporation had accounts receivable of $100,000 at 1/1. The only transactions affecting accounts receivable were sales of $900,000 and cash collections of $850,000. What is Remington's accounts receivable turnover? 6.6 9 7.2 6

7.2 Beginning of year account receivables is $100,000. The end of year accounts receivable is $150,000 ($100,000 + $900,000 - $850,000). The average net receivables is $125,000 ($100,000 + $150,000) / 2. The accounts receivable turnover ratio is calculated as net sales by average net receivables. $900,000 / $125,000 = 7.2 times.

A company has current year sales of $200,000, net accounts receivable of $30,000, and prior year net accounts receivable of $50,000.What is the average number of days to collect receivables, rounded to the nearest whole number? 146 6 5 73

73 = 365 / ($200,000 / (( $30,000 + $50,000) / 2)). The average number of day to collect accounts receivable is calculated by taking 365 divided by the accounts receivable turnover.

If a company employs the gross method of recording accounts receivable from customers, then what should sales discounts taken be reported as? A deduction from accounts receivable in determining the accounts receivable amount expected to be collected Sales discounts forfeited in the cost of goods sold section of the income statement An item of "other expense" in the income statement A deduction from sales in the income statement

A deduction from sales in the income statement Under the gross method, a company recognizes sales discounts when it receives payment within the discount period. The income statement then shows sales discounts as a deduction from sales to arrive at net sales on the income statement.

Which items should be included as part of accounts receivable reported on the balance sheet? Interest receivable Allowance for doubtful accounts Advances to related parties and officers Notes receivable

Allowance for doubtful accounts . Allowance for doubtful accounts in a contra account included in the accounts receivable section of the balance sheet.

A business realizes that collection from a customer will be impossible. The accountant needs to write off the uncollectible account using the allowance method.Which journal entry should be used for this purpose? Debit allowance for doubtful accounts; credit bad debt expense Debit bad debt expense; credit accounts receivable Debit allowance for doubtful accounts; credit accounts receivable Debit bad debt expense; credit allowance for doubtful accounts

Debit allowance for doubtful accounts; credit accounts receivable When using the allowance method to write off an accounts receivable that is deemed uncollectible, allowance for doubtful accounts is debited, and accounts receivable is credited.

As of December 31, a company has an uncollectible balance of $10,000. The accountant wants to use the direct write-off method to write this amount off.Which journal entry should be recorded? Debit accounts receivable; credit bad debt expense Debit accounts receivable; credit allowance for doubtful accounts Debit bad debt expense; credit accounts receivable Debit allowance for doubtful accounts; credit accounts receivable

Debit bad debt expense; credit accounts receivable When using the direct write-off method, bad debit expense is debited and accounts receivable is credited.

What is imputed interest? Interest based on the implicit interest rate Interest based on the coupon rate Interest based on the stated interest rate Interest based on the average interest rate

Interest based on the implicit interest rate When fair value cannot be determined for a financial instrument and no ready market for the instrument exists, a company must approximate, or impute, the interest rate. In order to determine the imputed interest rate, the company must first calculate the implicit interest rate of similar financial instruments and review factors such as the current prime rate, collateral, restrictive covenants, and payment schedule to determine the rate to use to value the instrument.

What is considered cash? Money market savings certificates Certificates of Deposit (CDs) Money market checking accounts Postdated checks

Money market checking accounts

What does the accounts receivable turnover ratio measure? Number of times the average balance of accounts receivable is collected during the period Percentage of accounts receivable turned over to a collection agency during the period Number of times the average balance of inventory is sold during the period Percentage of accounts receivable arising during certain seasons

Number of times the average balance of accounts receivable is collected during the period The accounts receivable turnover ratio is used to assess the liquidity of the receivables, or the number of times, on average, the company collects receivables during the financial period.

When a company has cash available in another account in the same bank, how will a company present an overdraft? Report the bank overdraft amount as account payable Offset the overdraft against cash account Classify the bank overdraft as compensating balance Report the same in the notes to the financial statements

Offset the overdraft against cash account Typically, bank overdrafts are classified as a current liability. The notable exception to this is when the company has cash available in another account at the same bank, offsetting is required.

A company has cash in bank of $10,000, restricted cash in a separate account of $8,000, and a bank overdraft in an account at another bank of $3,000.Which amount should this company report as cash in the balance sheet? $21,000 $10,000 $18,000 $15,000

$10,000 Cash in the bank is the only item that is included on the cash line item. Restricted cash is on a separate line item, and bank overdrafts are recorded as current liabilities.

A company has the following cash balances: Large bank$127,000 Small bank$17,000 Continental bank$(42,000) Petty cash$450 3-month treasury bill$60,000 CD maturing in 18 months$100,000 What is the amount of cash and cash equivalents that should be reported? $144,450 $162,450 $102,450 $204,450

$204,450 = $127,000 + $17,000 + $450 + $60,000. Cash and cash equivalents include all positive bank balances, petty cash, and the 3-month treasury bill.

If a cash discount of 1/10, n/30 is given, what does the customer get? 10% discount if they pay within 20 days 10% discount if they pay within 30 days 1% discount if they pay within 20 days 1% discount if they pay within 10 days

1% discount if they pay within 10 days Cash discounts are generally presented in terms such as 1/10, n/30 which means 1 percent if paid within 10 days, gross amount due in 30 days).

A company has current year sales of $500,000, net accounts receivable of $35,000, and prior year net accounts receivable of $43,000.What is the accounts receivable turnover, rounded to the nearest one decimal place? 12.8 11.6 14.3 6.4

12.8 = ( ($500,000 / ($35,000 + $43,000) ) / 2). The accounts receivable turnover is calculated by taking net sales and dividing it by the average net accounts receivable.

During the year, Trout Enterprises made an entry to write off an $8,000 uncollectible account. Before this entry was made, the balance in accounts receivable was $100,000 and the balance in the allowance account was $9,000.What was the net realizable value of accounts receivable before and after the write-off entry? $99,000 $83,000 $91,000 $100,000

$91,000 The net realizable value of the accounts receivable before the entry is $91,000. ($100,000 debit balance accounts receivable minus $9,000 credit balance for allowance for doubtful accounts.) The entry for the uncollectable account is: debit allowance for doubtful accounts and credit accounts receivable. Therefore, net realizable value of the accounts receivable after the entry is also $91,000 ($92,000 accounts receivable minus $1,000 allowance for doubtful accounts.) Remember, the company would have already made an allowance for this doubtful account (and corresponding bad debt expense), so the write-off is simply a balance sheet entry.

A company received a $7,000, noninterest-bearing note for the sale of inventory. The market rate at the time of the sale is of 8%. The note is due in full at the end of three years. Assuming an annual interest rate of 8% for three years is appropriate, the present value of the principal is $7,000 x 0.79383 = $5,557. Assuming an annual interest rate of 3% for eight years is appropriate, the present value of the principal is $7,000 x 0.78941 = $5,527.Which journal entry is recorded when the sale occurs? Debit notes receivable for $7,000; credit revenue for $5,557; credit discount on notes receivable for $1,443 Debit notes receivable for $5,557; debit discount on notes receivable for $1,443; credit revenue for $7,000 Debit notes receivable for $7,000; credit revenue for $5,526; credit discount on notes receivable for $1,474 Debit notes receivable for $5,526; debit discount on notes receivable for $1,474; credit revenue for $7,000

Debit notes receivable for $7,000; credit revenue for $5,557; credit discount on notes receivable for $1,443 The note is recorded at face value, revenue is recorded at the net present value using 8% for 3 years ($5,556.81 = $7,000 x 0.79383), and the discount on notes receivable is the difference between notes receivable and revenue ($1,443 = $7,000 - $5,557).

What is classified as a non-trade receivable? Monies owed on a bank loan Dividends receivable Verbal promises of the purchaser to pay for goods and services sold Note on the sale of a major piece of equipment

Dividends receivable Dividends and interest receivable are classified as non-trade receivables.

Which rate is used to calculate the discount on a note that equates the cash paid with the amount received in the future on a zero-interest-bearing note? Imputed Rate Nominal Rate Stated Rate Implicit Rate

Implicit Rate Because the company knows both the future amount (face value of the note) and the present value of the note (the cash paid), it can compute the interest rate. This rate is referred to as the implicit interest rate. Companies record the difference between the future (face) amount and the present value (cash paid) as a discount and amortize it to interest revenue over the life of the note.

A company has postdated checks of $10,000 at the end of the fiscal year.How should this item be reported on the year-end balance sheet? Receivables Cash equivalent Cash Prepaids

Receivables Postdated checks should be classified as receivables on the year-end balance sheet.

If, as anticipated, the FASB eliminates the cash equivalent classification, how will a treasury bill will be classified? Cash A receivable A temporary investment An investment

Temporary investment If the FASB eliminates the cash equivalent classification, anything that is not cash but is short-term in nature would be classified as a temporary investment.

A company uses days outstanding to evaluate its receivables. Which number does this ratio represent? Days that a company collects average sales Times that a company collects amounts due from customers Days that a company takes to collect amounts due from customers Times that a company collects average sales

The number of days the company takes to collect its receivables is called days outstanding.